Beignets and Market Trends

Beignets and Market Trends

If you are reading this on Sunday morning, I am in New Orleans at the National Association of Realtors Convention. I’ve had my cafe au lait and beignet -- breakfast staples in the Big Easy. Dr. Lawrence Yun, NAR chief economist, has reaffirmed what we already know and that is all real estate is local. The Dallas market has remained steady the past few years; Miami is recovering with an influx of foreign buyers and even Des Moines, the capital of Iowa where I grew up and went to college, is one of the top ten growth cities in the next decade. Who would have thought?

But, despite our local market trends, Alaska is not immune from the economic influences of the Lower 48. According to Dr. Yun, interest rates will rise the second quarter of 2015 to 4.5% and continue to increase to 6% within two years. Despite the low interest rates of the past few years, the U.S. is at a 20-year low for homeownership as millennials struggle with student loan debt and are couched in their parents’ basements. Many young adults in the 24-34 age group are facing serious obstacles on their path to homeownership as limited job prospects and flat wage growth have impacted their ability to save for a down payment. The new normal is that they’re often marrying later in life.

Mel Watt, who is head of the Federal Housing Finance Agency which supervises Fannie Mae and Freddie Mac, predicts that the credit box will open up. The credit recklessness of the past has swung the other direction and in order for our economy to improve, a more moderate approach to responsible lending will occur for credit-worthy buyers. In the past few years, mortgage originators have relied on refinances for their income. However, that market no longer exists and mortgage originators will voluntarily need to loosen their credit requirements in order to sustain profitability. This credit loosening will contribute to more opportunities for first-time homebuyers, many of whom are unaware, even in Alaska, that some mortgage loan programs require only a 3% down payment.

On a national level, homebuilding is only 50% of normal and that is certainly true in our local market. We will be lucky to hit 300 single family permits this year. But, multi-family production is back to normal nationally and has almost doubled from a year ago locally. Both locally and nationally, more construction loans should be available as banks are flush with profitability and need to lend. Unfortunately, 50% of homebuilding is done by small mom and pops which are mostly out of the market, having voluntarily or involuntarily through bankruptcy, given up the trade.

The good news is the record-high stock market which has created significant wealth for the top ten percent of Americans who are now buying second and third homes in resort communities and luxury single-family primary residences.

Dr. Yun’s last slide was a cover headline from the British publication, The Economist, “America Has Lost its Oomph.” But when 75% of young people still believe in homeownership, Alaska and America will most certainly prove that headline wrong.

Well, that's about it from New Orleans. Now, back to another beignet

If you are reading this on Sunday morning, I am in New Orleans at the National Association of Realtors Convention. I’ve had my cafe au lait and beignet -- breakfast staples in the Big Easy. Dr. Lawrence Yun, NAR chief economist, has reaffirmed what we already know and that is all real estate is local. The Dallas market has remained steady the past few years; Miami is recovering with an influx of foreign buyers and even Des Moines, the capital of Iowa where I grew up and went to college, is one of the top ten growth cities in the next decade. Who would have thought?

But, despite our local market trends, Alaska is not immune from the economic influences of the Lower 48. According to Dr. Yun, interest rates will rise the second quarter of 2015 to 4.5% and continue to increase to 6% within two years. Despite the low interest rates of the past few years, the U.S. is at a 20-year low for homeownership as millennials struggle with student loan debt and are couched in their parents’ basements. Many young adults in the 24-34 age group are facing serious obstacles on their path to homeownership as limited job prospects and flat wage growth have impacted their ability to save for a down payment. The new normal is that they’re often marrying later in life. Mel Watt, who is head of the Federal Housing Finance Agency which supervises Fannie Mae and Freddie Mac, predicts that the credit box will open up. The credit recklessness of the past has swung the other direction and in order for our economy to improve, a more moderate approach to responsible lending will occur for credit-worthy buyers. In the past few years, mortgage originators have relied on refinances for their income. However, that market no longer exists and mortgage originators will voluntarily need to loosen their credit requirements in order to sustain profitability. This credit loosening will contribute to more opportunities for first-time homebuyers, many of whom are unaware, even in Alaska, that some mortgage loan programs require only a 3% down payment.

On a national level, homebuilding is only 50% of normal and that is certainly true in our local market. We will be lucky to hit 300 single family permits this year. But, multi-family production is back to normal nationally and has almost doubled from a year ago locally. Both locally and nationally, more construction loans should be available as banks are flush with profitability and need to lend. Unfortunately, 50% of homebuilding is done by small mom and pops which are mostly out of the market, having voluntarily or involuntarily through bankruptcy, given up the trade.

The good news is the record-high stock market which has created significant wealth for the top ten percent of Americans who are now buying second and third homes in resort communities and luxury single-family primary residences. Dr. Yun’s last slide was a cover headline from the British publication, The Economist, “America Has Lost its Oomph.” But when 75% of young people still believe in homeownership, Alaska and America will most certainly prove that headline wrong. Well, that's about it from New Orleans. Now, back to another beignet